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Social Security: Delay or Take the Money and Run—Act II

by Robert Muksian

Social Security: Delay Or Take The Money And Run—Act II Splash image

A dilemma facing workers who have reached their full retirement age (FRA) is whether to take the Social Security benefit and continue working or wait to take advantage of an increased regular benefit and a significant delayed retirement credit.

I addressed this question in the August 2000 issue of the AAII Journal [“Social Security Benefits at 65: Delay, or Take the Money & Run?”], but with a “new” group of AAII members approaching elective ret

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Robert Muksian is a professor of mathematics at Bryant University in Smithfield, Rhode Island.


Discussion

D from California posted over 2 years ago:

Robert-
Yeah, sure, great- so I should wait until I turn 66 (my full retirement age)? Well, I am 62 now, and it occurs to me that you have based your conclusion that it is better to wait on two key assumptions, neither of which you have identified in your article:
1) that I will live the additional four more years until I would reach age 66; and
2) that Social Security will continue to exist in its present form and formulas four years from now.
So, I ask you now:
1) Can you guarantee me that I will still be alive four years from now?
2) Can you guarantee us all that Social Security will still exist in its present form and formulas four years from now?
Let me save you some time. The correct answers are:
1) No.
2) No.
Further, you apparently did not take into consideration that the payments received by people retiring at age 62 can be invested and return interest, compounding during that four year period ending at age 66. Even if I would live until age 66, who's to say I wouldn't be run over by a truck two weeks later? Or whatever.
I turned 62 in January. I took into account all of the above and cashed in immediately, and I am already receiving (and using and banking) my payments.


Laura from Massachusetts posted over 2 years ago:

Teachers and other government employees may find that their pensions cancel out any social security benefits they would otherwise be entitled to based on their spouse's earnings.

From the SSA site:

"NOTE: If your spouse will receive a pension for work not covered by Social Security such as government or foreign employment, the amount of his or her Social Security benefits on your record may be reduced."


Steve from Michigan posted over 2 years ago:

D from California has this one right, take the money sooner rather than later, either spend it or invest it, it really doesn't matter. SS is doomed, demographically it just is unsustainable. Speaking of unsustainable, what about the debt per tax payer? We haven't even factored in the cost of National Health Care, or Medicare and Medicaid, all completely unsustainable and big drains of resources that we don't have. Anyone who thinks this stuff just won't implode is delusional. Watch David Walker's video "I.O.U.S.A", and if you then think it's a great idea to delay taking benefits, we'll could I interest you in a bridge or two?


R from Alabama posted over 2 years ago:

D needs to re-read the article as it explicity takes account of earning interest on the proceeds of social security. D also needs to read a book on statistics so he can appreciate the notion of probability. Since he lives in California he indeed might die before age 66 with a greater than average probability. On the other hand, as California is the land of milk and honey and fruits and nuts, he might live untill he is 110. If the latter is the case, taking social security at 62 was a bad idea. Live long and prosper, D. The bottom line of the article is that the actuaries designed the options correctly. So you can beat the system only if you have good reason to think you'll die before or after the expected age of death, or you can earn more than 4% after tax on an asset no more risky than a US Government bond.


Navin from Washington posted over 2 years ago:

Very helpful and also raises some questions. If one retires at the age 62 can they still get the COLA adjustment to the benefit amount or does one have to wait until full retirement age to receive COLA adjustments?


Barry from Minnesota posted over 2 years ago:

I find the comments about SS being demographically doomed amusing. Wake up from the opinion altering flap that is being put out. Go research the actual data available on the social security trust fund. The fund is basically ok. The problem is that the funds have been borrowed to our government to fund other uses. These are the funds you and/or your employer in-trusted to the trust fund to fund your retirement. Mind you i'm not talking about Medicare here, that's a different story. The government owes this debt back to the fund and if they pay it back SS is in good shape. The issue here is that the rich who pay the majority of taxes would rather not have them raised to repay this over spending. They would rather see SS benefits cut back so that just get by pensioners carry the burden. The rich get richer and poor get poorer. The gap just keeps getting wider. Wake up. The fund taken by it's self is in good same. Policies that create inflation have the same effect.


Michael from Wisconsin posted over 2 years ago:

Barry from MN has it right. The only SS delusion is that it is going bankrupt. Go to the SS site and do a little research if you are in doubt. If we don't "fix" it, eventually we will all get 70 cents on the promised dollar. Hardly bankrupt. And there are easy fixes. Increase the max amount subject to the tax, increase the taxable benefit, etc. which would make it sustainable for another 75 years. By the way, despite the anti SS rhetoric from the right (who would privatize it), SS is not just a retirement program.


John from Minnesota posted over 2 years ago:

Too bad D from Cali bought into the scare talk about SS. And the author dealt explicitly with life expectancy, using averages, so read it carefully again. He can only talk about averages but not everyone is average. If you know something about your own health risks, then act accordingly, but it's an individual decision as the author makes clear.


Paul from California posted over 2 years ago:

A couple of things are not clear to me:
1. Even if I take benefits at 62, don't I get an annual COL adjustment? The author seemed to treat that as available only for someone who waited for full retirement age.
2. Do the enhanced earnings the author shows for higher ages include the assumption that the person continues to work, thus replacing lower wages with higher wages in the benefit calculation? Or are the enhanced wages due only to the longer wait before starting to collect?

I believe a fair comparison would be if the enhanced amounts were due only to the wait, and not from continued employment. After all, it is a lot nicer being on the beach at Maui than slogging to the office every day for an extra 4 years!


Hans from Florida posted over 2 years ago:

When I read all the comments about the article, I can only see a lot of emotions and it sounds like a lot of Republicans. My recommendation is, start take your SS at 62, then there is more money left, when I take it at 70. The SS fund is still liquid until 2030 or so, so why worry??. Has any of You thought about gthe spousal benefit which is much higher if you delay? it looks like everone is in business for him/herself, so take the money and run, the government ist just going to enjoy it Hans


Maynard from Texas posted over 2 years ago:

One factor that seems to be ignored in many of these studies are situations where a person wants to keep income as low as possible after reaching age 70 1/2 due to the tax burden incurred from RMDs. In some cases one may be in a lower tax bracket prior to the RMD era whereupon it may be more advantageous to take SS benefits at age 62. This may especially be the case if the benefits can be invested. When you factor in the tax implications for such circumstances the breakeven age can easily be in the 80's.


Scott from Oregon posted over 2 years ago:

Questions:
1. It appears from table 2 that age 64 is the best break even for a max earning individual. Did I read that wrong?
2. The discussion needs to include the spousal factor. My spouse worked part time until kids left home, then retired early. She will receive min SS next year (both 61). Consequently, at some point she will switch to spousal SS. What is break even point for my SS given it will fund both my and spousal? (assuming I effectively stop work at age 62).
3. So, if I assume 6% ROI, what is the answer to question 2?


Roger from Texas posted over 2 years ago:

Robert, I enjoyed reading your article today. I’ve heard the range of advice on this subject since I retired recently. My wife and I are both 58. My broker thinks 62 is the right age to start receiving SSA benefits. Probably because he figures I’d leave more assets in my IRA that way! I’m reasonably confident my wife and I have sufficient personal assets to manage into our 90’s. We’ve moved often, and still have a (3.75% fixed-rate) home mortgage on which I’ve scheduled payments to have paid when we turn 70. We also plan to apply to receive SSA benefits at age 70. I doubt either of us will last to the breakeven point. But I guess we don’t feel like we need to “win” by picking the optimum age at which to receive SSA benefits. We just want to have enough to live on comfortably until we die. This plan should give us a nice cushion in case the market performance reduces our assets quite a lot. If that happens, I’d still expect to have the next twelve years covered. Not that we really need to make the SSA decision now, but age 70 seems like the appropriate age for us.


Chris from New Jersey posted over 2 years ago:

Enjoyed the article, but want to state up front how much I appreciate the frank, helpful, and "stay with the facts" comments here...since the variables in the equation can't be assumed (health, income from 62-66, financial situation) we need a starting point. Robert has done that, and we can tweek to meet our needs. noting of course that things continually change...(plans are worthless, but planning is invaluable)..take Roger from Texas...what if there's an opportunity to pay off the mortgage at age 68?
Anyway...Well done, and thanks for the article.


Gregory from New Jersey posted over 2 years ago:

I did an analysis for my wife, 62 vs. 66. The breakeven point was 15 years. And if one assumes that the funds taken earlier are invested, the breakeven point is even furthewr out in time.


Richard from Florida posted over 2 years ago:

MY WIFE AND I BOTH TOOK OUR SOCIAL SECURITY BENEFITS AT AGE 62. THIS ALLOWED US TO LEAVE OUR MONIES IN OUR IRA'S. SO FAR WE ARE FAR AHEAD BY TAKING OUR SOCIAL SECURITY AT AGE 62.


Stephen from Massachusetts posted over 2 years ago:

I'm afraid that some of us just want to stop working; worryig about a crossover point 16 years ahead seems foolish, though I greatly appreciate the details of the article and will reread it. I just resigned from one job that provides 1/2 my income and will leave the other next September, when I am 64, to get SS. One fact I missed in the article or not mentioned is that only earned income subtracts $ from your benefits, should you retire before your allotted age. Those who are nimble enough or wealthy enough to make $ from trading stocks or getting bond interest ie. unearned income lose none of their SS benefits, no matter how early they retire.


Dennis from Texas posted over 2 years ago:

This is the most thorough and factually precise article I've ever read on the subject, and I thank Robert for all his hard work on it. It's too bad so many folks misread it or misunderstood basic actuarial reasoning, or injected politics into the discussion which makes planning subject to ideology, not data. Scott Burns suggested treating SS like a fixed-income annuity, which made sense to me, so I'm waiting until 70 based on my good health and that guaranteed 8% return. No one has been able to match that in the last decade. This article, if carefully read, gives you all the data you need to make a wise decision based on your individual situation.


Barney from Colorado posted over 2 years ago:

I am 72 now and took SS at 62. I would like to pay the difference now and go back to start it when I was 65. I can't seem to get a straight answer from anyone. I know this may be another article.

Thanks

Barney


Douglas from Arizona posted over 2 years ago:

SS will likely be around long after all of us are gone, but I believe that there is a relatively high probability that it will eventually (and likely in the not too distant future) be means tested. The benefits one receives will be adjusted based one's level of other income. So for those who have saved and have a decent level of income from interest and dividends, as well as from pensions, annuities or other sources, SS benefits will be reduced, and in some cases eliminated. So if you think means testing might affect you, factor its probability into your decision as to when to begin taking benefits. Sooner rather than later is probably wise for those of us likely to be impacted by means testing.


Milton from New Jersey posted over 2 years ago:

If one spouse has a low PIA (or has not worked enough to claim social security benefits on their own earnings) and is the spouse with the longer life expectancy, it is likely advantageous for that spouse to claim spousal benefits at 66, since spousal benefits do not accrue delayed retirement credits beyond full retirement age. Meanwhile, the high PIA spouse can delay retirement and accrue delayed retirement benefits in order to maximize the surviving spouse's eventual benefits.

The exact analysis needs to take into account both spouses' income records, ages, life expectancy, health, and marital status.


J from Virginia posted over 2 years ago:

barney

i believe that loophole (pay back and recalculate benefits) was closed late last year or january of 2011


it was too good to be true


a second unrelated question - if you expect your net income to take a substantial upward bounce as you reach full retirement age and the govn't decides to means test social security benefits based on income - are you not better off to take the lower amount at age 62 and at least get something before the exclusion hits


Roger from Arizona posted over 2 years ago:

Having considered the two sides of the issue it all boils down to what you believe the future holds for both you as an individual and for the United States Government. If you believe that your health is good and that you will live long and that the government will honor it promise then wait until age 70 to get social security. However, if you are in poor health or do not believe government will fulfill their promises or that the dollar will have real value years from now then you should take the money now.


Arthur from California posted over 2 years ago:

This is an excellent article and comments. I will be 62 at the end of this month and my current SS summary report indicates my monthly benefits are $25 lower this year than last. Benefits are not reduced to current recipients but the estimated benefits are reduced to future recipients because of deflation in 2009/2010. I did not notice this mentioned in the article and I may opt for taking SS benefits earlier before my estimated benefits are lowered again. My benefits were lowered by 25, 24 and 20 respectively for 62, 66 and 70 years.


Peter from Illinois posted over 2 years ago:

the analysis seems to compare the nominal value of benefits. IN my view, the future stream of benefits needs to be discounted by an appropriate interest rate. Money received in 10 years is not worth the same as money received today, even if there is no inflation. In other words, the analysis seems to leave out the time value of money. I did an analysis of discounted returns using 4% interest rate and concluded that the present value of taking the money at 62 was greated than waiting for higher benefits at 66. Also, I agree there is a risk that the system will be changed against those in mid to higher income ranges, so better a bird in the hand than two in the tree.


Gale from Illinois posted over 2 years ago:

SS is not just a retirement plan, it is an income redistribution plan and a Ponzi scheme where each retired generation, so far, has taken out more than they put in.

It can be fixed by decreasing benefits and/or increasing payments.


Ed from Texas posted over 2 years ago:

Way to go...this is clear is mud! Thanks a bunch Doctor Muksian, you get an F on clarity and A+ for ego.


Dennis from Kentucky posted over 2 years ago:

An excellent article, especially as a thought starting, beginning point to motivate each of us to analyze our specific situation. No article can encompass the myriad of individual circumstances we each have. Then you throw in a host of unknowns like health, trust in government, means testing, dollar devaluation, future value discount assumptions, etc. and you have a challenge. No one can get this right for sure unless they can see the future.


Don from Tennessee posted over 2 years ago:

Live longer, take benefits later. Live shorter, take benefits earlier. How's your health? How are your genes?

Out of work and need the money, take the check. Still working, defer the gratification.

Think SS will go bust, cash in now. Think the gov't will keep it going at its current rate, wait.

I think the article deals about as well with all this as can be done in a general piece. The comments help round it out. Thanks AAII.


Michael from Rhode Island posted over 2 years ago:

Table1 displays 2011 monthly maxwage benefit
age66=$2366 age70=$3193 (+35%)
Table2 displays age60=2009; monthly maxwage benefit age66=$2795 age70=$4236 (+51.55%)
Table3 displays age60=2005; monthly maxwage benefit age66=$2366 age70=$3622(+53.08%)

Why is the monthly benefit increase from age 66-70 so much higher in tables 2, and 3?

If the age 66- 70 benefit increases from table 1 were used to calculate figures used for breakeven ages, the breakeven age results would be stretched out far longer.

I was 60 in 2007, and the the monthly benefit figures in Table 1 agree with my OCt 7 2010 SS Statements, which I use them for breakeven claculations with very different results.


Thomas from Wisconsin posted over 2 years ago:

Thanks for the analysis it provides real numbers to make your personal descisons. How each person needs to discount their future and any potential political discounts that a person feels are appropriate to their peace of mind.


Henry from Massachusetts posted over 2 years ago:

I heard somewhere that if the United States allowed one million young people with an average age of 25 immigrate to the US and become part of the taxpaying workforce that social security would be in very good shape for the future. These immigrants would be paying FICA taxes for 40 years and would not be taking any money out.


Dan from Texas posted over 2 years ago:

A very thourough & complete article on the factors that (currently) pertain to this question. I applaud the author for the depth and breadth of his analysis. I believe that there will most likely be means testing for benefits at some point in the near future, and also an upward adjustment in the FRA. While SS is not broke, it definitely needs tweaking in order to to continue to function at all. Therefore, I think it makes sense to delay no longer than the FRA before you elect "take the money and run". This is especially if you have substantial means and might be subject to forfeiture. All of this argues for at least some degree of ownership of ones individual contributions, in my opinion.


C from New Hampshire posted over 2 years ago:

Robert, this is an excellent article, thoroughly well-thought out, one that provides not simply the mechanics of how ssa arrives at the benefit, but the factors that an individual should consider in determining whether to "strike early" and receive benefits, or withhold. What I particularly like is that you did the math in determining an earlier distribution with regards to "opportunity costs" (i.e receiving a return on current money received from ss).
The two greatest issues should always be: 1) need for income
and 2) current and future health prospects of the individual deciding on when to take the benefit.
If you need the income currently, well the decision is already made. If not, then what are the health-prospects of the individual? If Life Expectancy is short, and you're no longer working ( a factor that could reduce or eliminate an early benefit) then take the benefit.


Anthony from California posted over 2 years ago:

A time value of money/investment return calculation was done to compare age 66 retirement to age 70, with appropriately variable results depending upon investment returns from 4 to 11.23% Why was this not done for the age 62 vs. 66 calculation?

I'm pretty sure that if you take benefits at age 62, they will increase with COLA between then and age 66. The author did not make clear to me (and I'm an actuary) exactly how the PIA changes during the period from age 62 to age 66. Does it increase with NAWI or COLA? He implied it increases with COLA and says the bend points in the benefit formula increase with NAWI. This is complex and would take several sample calculations over a few NAWI/COLA scenarios in order to draw a correct conclusion.

I also think Hans' point about the income bump when you hit RMD's at age 70 is well taken.


George from Texas posted over 2 years ago:

I would like to make certain of one aspect. Wages from the year turning age 22 through the year turning age 60 are used to calculate the benefit? If true, it brings to mind some tough situations involving people who start working later in life. For example, start work at 45 and work to 70 and take benefits yield 16 years of indexed wages (from age 45 to 60) divided by 35 years to get benefit. Even worse, start at 61 and work to 70 and take benefit. In this case the worker gets their 10 years to qualify for their benefit but gets no benefit.


George from Texas posted over 2 years ago:

I see that I didn't read very well (prior posting). It states that wages after 60 up to year prior to taking benefits are used.


Marcin from Arizona posted over 2 years ago:

Reading some of these comments really scares me. This article just like all articles gives us information to enlighten us to make a more educated decision based on our personal matter. While some say that it makes sense to take your benefit early and invest. Did we forget how many people lost money and have to work longer in the past couple of years. Did social security benefits decrease – No.? Many people say they don’t trust social security or can you guarantee that social security will be around. Well, No, but can you guarantee that your investments will be around? Can you guarantee that the banks will be around? Can you guarantee that someone will not steel your money if you put it under your mattress? The point is nothing in life will work out 100% of the time. What we should be doing is educating ourselves from articles like this and make our own decisions. I thank the author for his time. I did find an error in the article though. Page 14 Robert writes that there is an earnings limit for wages over 1,180 per month in 2011 between 62 and the full retirement age. The correct way to state that is that there is a 1,180 per month wage limit In the FIRST year that the benefit is taken. Second year until Full retirement age it’s based on a yearly amount of 14,160 (not on the monthly wage). In the Year OF when the individual attains their full retirement age they can make 37,680 from January until their full retirement age. If they exceed that amount their benefit will reduce 1dollar for every 3 dollars in excess of 37,680.


Steven from Minnesota posted over 2 years ago:

I found the article most helpful to understand the approximate social security benefit I would recieve, beginning at different ages. It was also somewhat technically complex (I ran the spell check readability statistics on part of it in Microsoft Word), and think it would be helpful for more people if it was simplified a bit in a later issue.

It would also be helpful to cover a bit more the impact of taking Social Security at the earlier time frames and continuing to defer withdrawls from IRA Accounts. This has been our choice, and so far it seems to have been a good decision.

A similar article on the cost of "making it" to Medicare age, and the cost to expect for Supplemental Coverage would be most helpful.

Again, thanks for the helpful article!


Jim from Pennsylvania posted 11 months ago:

Unfortunately a large number of people are payed off after age 50 and cannot find a job. Thatvis a large number of people "retire" early and do not have the choice. Others choose to retire before age 59. According to the calculations on the ss web site if someone retires at age 56, their benefit does not increase with age. Did I run these calculation through the web site incorrectly?


Jim from Pennsylvania posted 11 months ago:

Unfortunately a large number of people are payed off after age 50 and cannot find a job. Thatvis a large number of people "retire" early and do not have the choice. Others choose to retire before age 59. According to the calculations on the ss web site if someone retires at age 56, their benefit does not increase with age. Did I run these calculation through the web site incorrectly?


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